On June 22, 2020, the Supreme Court held in Liu v. SEC that the Securities and Exchange Commission (“SEC”) may seek, and courts have the power to grant, disgorgement as an equitable remedy for violations of the securities laws. However, the Court also placed potentially important limitations on disgorgement, holding that—to qualify as an equitable remedy and thus be allowable—disgorgement awards must accord with certain traditional equitable principles. While the Court left it to the lower courts to determine whether SEC disgorgement requests are in fact equitable on a case-by-case basis, it articulated guideposts calling into question the SEC’s ability to obtain disgorgement that (1) exceeds a wrongdoer’s net profits, (2) is not distributed back to victims, and (3) is awarded against multiple defendants on a joint-and-several basis. Although the Liu decision preserves the SEC’s ability to seek disgorgement—a central tenet of the SEC’s enforcement program—it imposes a number of line-drawing questions on lower courts to consider. Depending on how the case law develops, these issues may serve both to increase the SEC’s burden in making out disgorgement claims and to reduce the total dollar amounts of disgorgement awards the SEC is able to obtain, perhaps significantly.
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